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Welfare Analysis of Government Subsidy Programs for Fuel-Efficient Vehicles and New Energy Vehicles in China

Author

Listed:
  • Ziying Yang

    (Southwestern University of Finance and Economics)

  • Manping Tang

    (Sichuan Agricultural University)

Abstract

To address energy security and environmental problems, the Chinese government has issued various subsidy programs for fuel-efficient vehicles and new energy vehicles (NEVs). This paper investigates the effectiveness and welfare consequences of (1) the vehicle and vessel usage tax incentive (VVUT-incentive), (2) the fuel-efficient vehicle subsidy program (FEV-subsidy program), and (3) the NEV private purchase subsidy pilot program (NEV-subsidy program). From car registration data for Shanghai, Changchun, Hangzhou, Hefei, and Shenzhen from 2011 to 2012, we estimate a random coefficient discrete choice model and conduct a counterfactual analysis based on the estimated parameters. The empirical findings suggest that these policies promote the diffusion of fuel-efficient vehicles and NEVs and improve fleet fuel efficiency. However, the VVUT-incentive and FEV-subsidy program increase oil consumption and CO2 emissions. Although the NEV-subsidy program decreases gas consumption, it increases CO2 emissions. We also show that the VVUT-incentive and FEV-subsidy program improve welfare conditions. However, the NEV-subsidy program compromises social welfare, as losses of government revenue exceed consumer surplus gains.

Suggested Citation

  • Ziying Yang & Manping Tang, 2019. "Welfare Analysis of Government Subsidy Programs for Fuel-Efficient Vehicles and New Energy Vehicles in China," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(2), pages 911-937, October.
    • Handle: RePEc:kap:enreec:v:74:y:2019:i:2:d:10.1007_s10640-019-00353-8
    DOI: 10.1007/s10640-019-00353-8
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    3. Prateek Bansal & Rubal Dua, 2022. "Fuel consumption elasticities, rebound effect and feebate effectiveness in the Indian and Chinese new car markets," Papers 2201.08995, arXiv.org.
    4. Cui, Yu & Khan, Sufyan Ullah & Li, Zhixue & Zhao, Minjuan, 2021. "Environmental effect, price subsidy and financial performance: Evidence from Chinese new energy enterprises," Energy Policy, Elsevier, vol. 149(C).
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    More about this item

    Keywords

    Environmental effects; Fuel-efficient vehicles; Government subsidies; New energy vehicles; Welfare consequences;
    All these keywords.

    JEL classification:

    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L91 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Transportation: General
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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